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TripAdvisor Stock Forecast: Is It a Buy?

If you would like to invest in travel but can’t decide which hotel chain or airline to put your money, buying shares in a business that serves the hospitality industry could give you the best of both worlds. In this case, a stock like TripAdvisor [NASDAQ: TRIP] could be an option.

Understanding TripAdvisor and its Value Proposition

TripAdvisor is a travel review site that attracts roughly 490 visitors every month. It serves 48 markets in 28 languages and has 730 million reviews – with more going up every day.

It caters to the largest travel audience in the world by monthly views. The site also includes price comparison tools and the ability to make reservations for everything from hotels to restaurants.

The market opportunity for TripAdvisor is big. Globally, people spend $1.7 trillion every year on travel arrangements and experiences, many of which are self-directed.

People around the world decide on destinations and hotels without any information other than that provided by the website and online reviews.

TripAdvisor provides a place for all of those people to share their experiences and offer guidance for others who may be considering those travel options.

How Does TripAdvisor Make Its Money?

TripAdvisor’s business is divided into two segments – hotel and non-hotel operations. The latter includes activities (“experiences” in TripAdvisor lingo), rentals, and restaurants.

The majority of the company’s income comes from its hotel segment. Around 72% of TripAdvisor’s revenue came from the hotel division in the fiscal year 2018.

That figure is significant, but it marks a continual decline from the year before when 77% of TripAdvisor revenue stemmed from hotels in FY 2017 and 80% in FY 2016.

The bulk of TripAdvisor’s hotel revenue comes from click-based advertising with subscription-based advertising coming in second. The company’s non-hotel operations generate money in a similar fashion – a fee for businesses to advertise on the site and an additional cost-per-click.

Over the long term, TripAdvisor plans to continue doing what it does. The company can leverage its many reviews to attract more users and those users will generate more content. Over time, the increasing number of reviews will drive more visitors to TripAdvisor’s sites and help the company make more money.

To make this strategy work, TripAdvisor [NASDAQ: TRIP] will have to maintain a robust platform and make sure that the user experience is pleasant. The right technology will help, but it will have to fit in with the features its customers want. The company also needs to build strong relationships with its travel partners so they will continue to want to be listed on the site.

Is TripAdvisor Stock Undervalued?

Right now, TripAdvisor is trading in a 52-week range of $43.40 to $69. Analysts predict that the share price will hit $52.43 in the next year.

This average consensus represents an increase of 10% – a fair 12-month return on your investment, but not as high as many other stocks.

TripAdvisor’s share price took a sharp hit after reporting a decrease in monthly visitors at its last quarterly report. Shares in the company fell close to its 52-week low on the news.

Revenues were also a problem.

TripAdvisor brought in 1Q19 revenues of $376 million, falling over $9 million short of the consensus estimate of $386.8 million for the quarter. Moreover, its quarterly revenues dropped on a year-over-year basis too.

What are the Risks of Buying TripAdvisor Stock?

Buying TripAdvisor stock [NASDAQ: TRIP] comes with risks. While there will be some seasonality to TripAdvisor’s business – travel is very seasonal – the biggest risk is that people will stop using the site.

Some members will decide to stop posting while others will skip posting because the site already has so many reviews.

The company could come around this issue but it needs to find ways to capitalize on the number of visitors it gets without eroding the quality of the customer experience.

Also, TripAdvisor relies on search engines to attract traffic to its sites. Most of this comes from keywords. However, if the algorithm changes too much, the company could find its site slipping down the rankings.

Competition is another matter.

If a new site emerges that can offer something TripAdvisor can’t, the company could lose business – and it’s not like there aren’t loads of companies trying.

New platforms come up all the time, some of which are backed by big names like Apple (specifically its iTravel and Wallet) or Google Trips. The right platform won’t just cost TripAdvisor visitors, it could cause the company to hemorrhage business partners.

Right now, Expedia and Booking brings in 37% of TripAdvisor’s revenue. Losing one or both of those travel partners would be devastating.

TripAdvisor Stock Forecast: Buy or Sell?

Whether or not TripAdvisor [NASDAQ: TRIP] is a buy depends on how unique you find the company’s offering to be and whether or not you have faith in its ability to remain competitive going forward.

Declining visitor volume is a significant concern for a business that depends on traffic. Be cautious investing in TripAdvisor until you find a reason to believe that the company can better engage its visitors going forward.